Monday, January 27, 2014

The Econ Nobel Prize is really weird

A lot of people thought it was strange, and a little funny, to see the 2013 Econ Nobel Prize awarded to two people (Gene Fama and Robert Shiller) whose theories contradict each other, and who hold deeply opposing views of the way the world works. But if you think that's odd, you should see the juxtaposition in macroeconomics. You can actually see Shiller's work as building on Fama's, however accustomed the two men are to arguing with each other. But the 2004 and 2011 Econ Nobels went to people whose work, and worldviews, really just can't be reconciled.

The 2004 prize went partly to Ed Prescott, the inventor of Real Business Cycle theory. That theory assumes that monetary policy doesn't have an effect on GDP. Since RBC theory came out in 1982, a number of different people have added "frictions" to the model to make it so that monetary policy does have real effects. But Prescott has stayed true to the absolutist view that no such effects exist. In an email to a New York Times reporter, he very recently wrote the following:

“It is an established scientific fact that monetary policy has had virtually no effect on output and employment in the U.S. since the formation of the Fed,” Professor Prescott, also on the faculty of Arizona State University, wrote in an email. Bond buying [by the Fed], he wrote, “is as effective in bringing prosperity as rain dancing is in bringing rain.”

Wow! Prescott definitely falls into the category of people whom Miles Kimball and I referred to as "purist" Freshwater macroeconomists. Prescott has made some...odd...claims in recent years, but these recent remarks were totally consistent with his prize-winning research.

But the 2011 prize went partly to Chris Sims, inventor of a number of time-series and Bayesian econometric techniques. As Tony Yates also pointed out on Twitter, Sims' work shows that monetary policy does have real effects. From the conclusion of Sims' Nobel lecture:

Interest rate changes engineered by open market operations do have substantial effects on the economy, both on real output and inflation...Effects of monetary policy on output are fairly quick; effects on inflation take longer to play out.

It is not possible to see Sims' work as an expansion on or a correction to Prescott's; the two methodologies are not even related. The conclusions are diametrically opposed. It's as if the Nobel Prize in Physics went to one person who made a theory saying that electricity doesn't exist, and then seven years later was awarded to a person who took measurements showing that electricity does exist. That seems like it would never happen.

Now, the way out of this contradiction is to say that Prescott's contribution was mostly methodological - that the modeling technique he invented in the process of making his theory has since been used to obtain results that agree with Sims'. But in fact, the Nobel committee explicitly said that Prescott and his co-author were awarded the 2004 prize "for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles" (emphasis mine). TThe prize was awarded for the content of Prescott's model, not just the technique.

Also notice that this is not the first time this has happened. The Econ Nobel has also been awarded to Friedrich Hayek, Milton Friedman, and James Tobin, all of whom had different, mutually contradictory explanations for the business cycle.

So I conclude that the Econ Nobel Prize is a really weird institution. It makes one wonder how seriously we should take the prize.

Updates:

In case you're wondering, Prescott is clearly swimming against the tide here. Most economists would agree that monetary policy does have real effects, at least in many situations.

Prescott is wrong. It is NOT an established fact the monetary policy has no effect on economic activity. The balance of the evidence suggests the opposite. Monetary policy seems to have clear measurable effects on the economy.

He goes on to say some interesting and (in my experience) accurate things about top scholars in the econ field. In the comments, he offers the following conjecture:

Another thing that I should mention is that pride and ego are always factors when you are talking to academics (and the pride effect is probably even greater for Nobel Prize winners). Prescott’s view of his own research contribution is probably quite different from the general view of his contribution. The evidence is now pretty clear that productivity shocks don’t really have anything to do with the business cycle but Prescott may be very reluctant to openly admit this. His statement about monetary policy might be his way of “doubling down” on his earlier claim that the business cycle could be caused by real shocks.

81 comments:

Note that Nobel prizes have awarded contradictory theories about the nature of light (disagreeing whether it's a wave or a particle): http://www.nobelprize.org/nobel_prizes/themes/physics/ekspong/ Of course, the contradictions are now resolved (it's both).

What are the criteria for these things anyway? In science you very often get people who do things that demonstrably change the way science is done, and that comes with what seems like real progress understanding the real world. It seems like it's really rare that you get sweeping changes to the way economists do their jobs, and it's not clear how often changes, even when they do occur, demonstrably produce empirically superior results.

Sims seems like a strange Laureate to contrast with Prescott. While he does claim to have shown that monetary policy can affect output, his bigger conclusion (from his 1980 paper) was that, contrary to the claims of the Monetarists, money was not the major driver of business cycles. That seems consistent with the Prescott view of the world.

His conclusion, I believe was that monetary policy changes did not drive the business cycle. But that is consistent with a monetarist view if you believe monetary policy is exerting a stabilizing rather than a destabilizing force on the economy.

True, but that was not the position of the original Monetarists. That's why they advocated constant money growth rules. Sims, after initially semi-validating their claims in 1972, changed his position and showed that it would be a bad idea.

True, those original monetarists were pretty convincingly rebutted. I tend to use the word "monetarist" in a sloppy way to mean "anyone who thinks monetary policy should be the main tool of stabilization policy".

That's fine. My larger point is that the prize committee wasn't being schizophrenic by awarding the award to Sims one year for showing that the source of macroeconomic fluctuations is not mainly monetary in origin, and then giving the prize to Prescott in a different year for showing that it was partially due to technology shock.

Of course, my opinion isn't that far from you as to why they award the prizes. It's usually not that someone has advanced the field or highlighted something important. It's usually just that someone was really influential, as both Sims and Prescott were.

1) If Prescott really did discover something important about the causes of business cycles, how did he show this?

2) He "showed" it by demonstrating that a calibrated RBC model, when simulated, produced cycles that he (and some others) thought looked enough like actual business cycles to conclude that technology shocks account for most of the business cycle.

3) That RBC model assumes a number of things (flexible prices being only one of those things) that also force monetary policy not to affect output.

4) Hence, Sims' result that monetary policy does affect output shows that there are problems with the model Prescott supposedly used to discover "the driving forces behind business cycles."

Oh, I'm sure they disagree on many things. And it is no surprise that the technology shock hypothesis is rejected by formal statistical tests; that's why they went with calibration to start. However, their "contributions" covered different domains. Their conclusions that were cited in their awards were not contradictory.

I guess you have a point though. Sims was given a prize for developing statistical methods that reject Prescott's theory.

Hmm...is your point 3 correct? It is true that the RBC model *needs* those assumptions? My interpretation is that the original "Time to Build" paper was exploring just how far you could get with Pareto efficient fluctuations of a long run growth model. If you put sticky prices in there with monopolistic competition, but keep the exact same model otherwise (with the exact same implausible elasticities), you'll get Keynesian fluctuations moving about the fluctuations of the growth model, but you'll still get the cycles they document.

In other words, Kydland and Prescott don't make assumptions just to rule out monetary policy because they don't think it matters, they do it because they are focusing only on how far a standard growth model can take you. They say it can take you pretty far.

Their conclusions that were cited in their awards were not contradictory.

Yes, they were directly contradictory. Sargent and Sims were given the prize "for their empirical research on cause and effect in the macroeconomy". This research contradicted the conclusions about the "driving forces behind business cycles" cited in Kydland and Prescott's Nobel!

I guess you have a point though. Sims was given a prize for developing statistical methods that reject Prescott's theory.

Yup.

Hmm...is your point 3 correct? It is true that the RBC model *needs* those assumptions?

If you think about it, you'll realize that it doesn't matter. Maybe an RBC model could have been built without those assumptions that achieved the same result; but as far as I know, Kydland and Prescott did not build one.

Sims showed that monetary policy affects output. That must mean that there is some mechanism by which it affects output. That must mean that Kydland & Prescott's model is incomplete. Whatever it's missing could be an important source of business cycles.

Now apply Sims' methodology and, lo and behold, there are other sources of business cycles that dwarf the Kydland-Prescott stuff.

Here's the extent to which I'd agree. Sargent and Sims were being rewarded for statistical methods. These methods, when applied to Kydland and Prescott, reject, or at least minimize the importance of the theory. The prizes are contradictory to the extent that Kydland and Prescott (KP) affirm their theory by rejecting those methods.

However, I don't think it's fair to cite the non-neutrality that Sims showed as a contradiction. If KP said that they accounted for 80% of the fluctuations of output and employment, but after years of review, the consensus of the profession was that it was only 25%, it still might be prize-worthy, even if a different laureate was able to account for another 25% (and that 25% was lower than the profession previously thought it would be).

Not that dissimilar from Golgi and Cajal in 1906. Golgi invented a stain to study the brain. Cajal used it to develop the theory that the brain is made up of discrete neurons. Golgi rejected it in favor of the reticular theory that the nervous system is a monolithic network. They feuded, but ended up sharing the medicine Nobel. Golgi attacked Cajal rather harshly in his Nobel speech.

It's more than slightly OT, but I can't resist mentioning that Tom Lehrer's excuse for ceasing to write is that the award of the Noble Peace Prize to Henry Kissinger rendered political satire obsolete.

I think your well-expressed truths about the conflicting substance of 'prize-worthy Econ' should be combined, or perhaps highlighted by, the brutal truth about what the actual prize is. It's a little pile of money and a dinner with the royal family. Simpletons love the monumentalizing, but shouldn't really serious Econ just change the world? Or at least find affirmation from something more substantive?

As a cell biologist, the quote “It is an established scientific fact that..." makes me cringe. Scientists in the so-called hard sciences are loath to use the word "fact" in reference to science, because philosophically it's essentially impossible to "prove" anything. I wish economists were more careful in their communication of such uncertainties to the public/press, particularly given that actual blinded, controlled studies are generally impossible in macroeconomics. I think in part it's this overstating of results and the fact that multiple models can be built to explain complex phenomena, which subsequently are extremely difficult to test, that also contributes to the contradictory findings of Nobel laureates.

Prescott doesn't do "careful". The first time I read one of his papers, the prof who was assigning it (who was not particularly antagonistic to Prescott) described his style as "messianic".

Other economists will make careless claims occasionally, but Prescott does so with unique fervor. He truly seems to believe he has discovered, not the way to do econ, but The Way. I wouldn't generalize too much from his statements.

My understanding is that this prize goes to people who are thought- provoking, even if they are shamefully (or perhaps, shamelessly) wrong. It is in no way a barometer of accuracy or merit as to the actual math and economics involved.

The Peace Prize is the only useful one. It's used to prevent various important dissidents from getting executed by giving them enough fame that the governments which hate them get nervous about executing them.

The physics prize goes to the guy who put in the last piece of the theory even if he didn't do any of the tough groundwork. The chem and medicine prizes go to principal investigators and ignore the huge team who puts in work.

The prize goes to the person who makes the irreplaceable contribution. In physics, the person who synthesizes the results of others work is rightly celebrated. In chemistry and medicine the one who identifies the problem to be solved and the approach to be taken is rightly celebrated. We celebrate Christopher Wren, not the stone masons who actually built St. Pauls Cathedral.

1) RBC models do not assume that monetary policy has no effect on output. This would be the case if they included money and assumed that it is neutral. However, the first RBC models do not include money at all, so they make no assumptions or predictions regarding whether money has any effect on output.

2) Aside from their methodological contribution, RBC models also make an important contribution regarding how we should be thinking about business cycles. At the time it was believed that any fluctuations in economic activity are either Keynesian in nature or driven by unexpected fluctuations in the supply of money (Lucas). Either way, an appropriate policy response is welfare-improving. Kydland and Prescott, as well as Long and Plosser, showed that fluctuations can arise as optimal responses to shocks exogenous to the economy. The implication of this finding is that a drop in output or employment does not make a prima facie case for government intervention. One must first determine if an inefficiency exists, where and why it exists, and only then devise a policy capable of addressing it. Such a qualification is important, I think. For example, it may have contributed to better monetary policy during the productivity slowdown of the 1970s, and this is perhaps why these models appeared in the early 1980s.

3) Even if the assumption that all markets clear is invalid, this does not also invalidate the key prediction of the model that technology shocks can generate fluctuations in employment and output. For example, in models where the labor market does not clear (because of search costs and/or wage rigidity), productivity shocks have a similar effect on output and employment as in market-clearing models, except that these fluctuations are no longer necessarily efficient. For an example, see Blanchard and Gali (2010): http://pubs.aeaweb.org/doi/pdfplus/10.1257/mac.2.2.1

In conclusion, I see nothing strange with awarding the Nobel Prize to Prescott and then to Sims. Prescott's work was path breaking both methodologically and because it introduced new ideas that became the basis for much of the research that followed (like the paper by Blanchard and Gali). This is irrelevant to Prescott's personal views regarding monetary policy, which brings me to the question:

Are you sure that Prescott's email remark refers to the short-run and not the long-run?

the key prediction of the model that technology shocks can generate fluctuations in employment and output.

Just because they can in theory cause fluctuations does not mean that technology shocks have caused any particular fluctuation. It is difficult to identify a technology shock responsible for the housing bubble since bank fraud was not a new invention.

It should be trivial to construct a model where delays in reliable information create a system that will tend to oscillate in response to any random exogenous change or even just to intrinsic noise which is mistaken for information. The policy response to reduce the period and amplitude of the oscillations would be to improve the quality and timeliness of information. Better faster information about the quality of mortgages might have avoided the housing bubble and financial crisis entirely.

Noah, Williamson just posted something relevant. In any case, as you say, if Prescott believes this he is clearly in the minority. However, once again, I do not think this belief comes out of the research for which he won the Nobel Prize. If anything, it may be the other way round, his belief may have lead him to ignore money in his models.

Absalon,first you need to acknowledge the possibility. Only then can you look for it in the data. But there is empirical work that finds a link between technology shocks and economic activity. Examples:*http://www.nber.org/papers/w10950 (on the productivity slowdown of the 1970s)*http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.4.1144 *http://www.brookings.edu/~/media/Projects/BPEA/Spring%202000/2000a_bpea_jorgenson.PDF (on the IT revolution)*http://onlinelibrary.wiley.com/doi/10.1111/1540-5982.t01-2-00003/abstract

Of course, the question is what is the magnitude of the impact of these shocks and at what frequency. However, I think it is wrong to believe that all output fluctuations have a single cause. I also thing it is a mistake to ignore that different events may interact (something I have talked to Noah about in person and we seem to agree on). For example, the .com bubble and the recession following its burst in 2001 were byproducts of a real technology shock.

CA - I acknowledge the possibility of a technology shock causing either a bubble and subsequent crash or even, in special circumstances, directly causing a local recession. But I don't think we see many technology shocks capable of large short term (less than five years) effects.

I am not suggesting one cause. I am trying to say that general problems with how information is disseminated and acted on could structurally predispose the economy to "ringing" behavior - then any cause could set the pendulum swinging.

"The 2004 prize went partly to Ed Prescott, the inventor of Real Business Cycle theory. That theory assumes that monetary policy doesn't have an effect on GDP. Since RBC theory came out in 1982"

Waaaait a minute there... How do you get a nobel prize for a theory that came out in 1982 that seems to say that the 1980's recession wasn't caused by sharp monetary tightening? I thought that by 2004 it was well accepted that the recession was caused or at least exacerbated by record high interest rates (monetary policy), courtesy Paul Volker.

Prescott is an acquired taste I think. You need to filter what he is saying and learn to extract the important stuff. It's easy to take pot shots at what he says in public. But the ideas are huge. You may not like basic RBC, but it's very influential, and people have adapted it to many uses. Calibration got a horrible reaction initially from econometricians, but that lives on, for good reason. And the time consistency work with Kydland is key.

I remember a story my advisor, a University of Minnesota graduate, once told me. While working on his dissertation he was getting some weirs results so he went to Prescott for advice. After explaining what he was doing in detail, Prescott responded with on line: Check your sigma-algebra. It took him weeks to figure out what Prescott meant, but he was right.

I sat for two years in the office next to Prescott's. The walls were very thin, so I could hear him talking to students. That was important, as I could get some understanding of why he is so successful. The array of students he has produced is remarkable, and those people are all independent thinkers - they're far from Prescott clones. You should understand that Prescott had to overcome a speech impediment - speaking in public is very difficult for him. But there will be some cryptic comment that comes out of his mouth, and if you think about it for a couple of days, it turns out it's quite deep. Don't underestimate the guy.

I give credit to Prescott for the time consistency stuff and more recently for his provocative work with Parente.

But some of his other contributions had negative value.

His attempts of explaining business cycles by productivity shocks fell flat.

Not to mention his insistence on microfoundations while spending his whole career working with aggregate production functions... Maybe that should be taken as a proof that technological regress is a fact of life :)

But his worst damage was methodological. He argued - and convinced many a weak minded colleagues - that generating a mathematical model that roughly reproduces some empirical regularity in the data may constitute evidence that that particular mathematical model teaches us something about how the world works. If you think real hard, that is amazingly stupid. Yet that is still an influential view in the profession.

This is why economics is so wonderful. There's nothing weird about those prizes at all, or the fact that, at times, Sims and Prescott worked about 20 feet from each other (not that they got along). Sims and and Prescott both made key contributions to the profession, that have had lasting effects, and we can learn a lot by studying their published work, and talking to them, if we have the opportunity. Indeed, there are ways to meld their ideas, as plenty of people - take Larry Christiano as an example - have.

As a biologist, I don't know anything about econ or physics; I know a little about chemistry.To my knowledge - which extends in an informed way back to about 1980, all of the Nobels in medicine and chemistry have gone to a person or person(s) who have (a) done something significant - as they say, it changed how undergrad textbooks are written - and (b) have done something that after a few or many years is still regarded as correct, in the sense that it brought us a better understanding of how things work.

The lack of error seems to be the difference between econ and biol; to my knowledge, no biol or chem prizes went to someone who is wrong.

"The lack of error seems to be the difference between econ and biol; to my knowledge, no biol or chem prizes went to someone who is wrong."

Good. You're starting to get it (though Noah has a hard time with this concept). This is the nature of economics as a science. It's not that economists are somehow inferior scientists, and if only they would adopt the methods of biologists everything would be alright. Economic problems are very difficult, and economic models are necessarily wrong. If they are good models, they work well for the intended purpose, but could fail dramatically on some dimension that we don't care about - again relative to the purpose for which the model was built. This of course makes model evaluation difficult, which is in part why we argue so much in public. There's more to it than that, but that's enough for now.

Newton was false...Anon, you have to actually read what it is that i wrote.I didn't say nobels were given for work correct in all details, however minute; I said, quote, "something that after a few or many years is still regarded as correct, in the sense that it brought us a better understanding of how things work."

That Newtonian mechanics works well in most situations in, I think, undeniable; yes, he didn't have the "correct" answer, but he got a lot closer to the right answer.

Exactly. Like the Anonymous cell biologist said earlier, I think there is a serious ethical issue at hand when economists overstate their results and fail to convey the inherent uncertainties of the discipline.

For an insider, Prescott's comment is just "Prescott being Prescott" and can be readily contextualized as some koan-like nugget of wisdom from an important figure in a still-emerging field rife with methodological difficulties.

For a journalist or a policy-maker, however, it is a rotund statement of fact coming from a "Nobel-prize winning" authority in economics.

Fellow Soccer Dad, and are you sure Prescott's work did not contribute to our understanding of how the world works? Why, because Noah said so? I am not at all dogmatic. At the same time, I know from experience that as a result of Prescott's and Kydland's work, I and many other economists ask questions that we wouldn't have asked before their work. And the same is true for policy makers, at least the ones working in central banks.

Now, maybe you thing that this is not as big a contribution as most Nobel laureates in the natural sciences have made, but you must keep in mind that the constraints social scientists operate under are much tighter.

Claiming your prize is for economic sciences is just as convincing evidence of science as the unedifying comments of the winners on the events of recent years. But perhaps such criticism sets ourselves too easy a task. As someone said, the point is to change it.

Probably best to just stop giving the Swedish Bank prize. If you can't convince the Bank to do that, then stop *legitimizing* it -- it isn't a real Nobel Prize anyway.

The thing which the Swedish Bank Prize has proven is that fraud and deception is a major part of the world economy. Whoever introduced it should be given a prize for managing to defraud the world by convincing people that there was a Nobel Prize in Economics, which there isn't.

Macroeconomist's haven't been able to predict anything? How about the long-run relationship between money growth and inflation? How about the relationship between inflation and interest rates? How about conditional convergence in growth theory? Don't believe everything you read, especially here.

True, those original monetarists were pretty convincingly rebutted. I tend to use the word "monetarist" in a sloppy way to mean "anyone who thinks monetary policy should be the main tool of stabilization policy".

Slightly counterintuitive. Monetarists want monetary rules (eg through fixed exchange rates or a gold standard such that the money supply is endogenised.) The reason is they want "hands off" the money. They want independent central banks for the same reasons.

They're a weird lot. Basically they do not trust democracy. (If we can trust democracy to handle foreign policy whose instruments include WMDs we can certainly allow it to decide MP and its instruments of open market operations.)

Nobel's last will specified that his fortune be used to create a series of prizes for those who confer the "greatest benefit on mankind" in physics, chemistry, peace, physiology or medicine, and literature.

Has the work of Sargent, Barro, Prescott or Lucas "made the world a better place"?

Nobels in economics are given to people who put common sense (and often not very common sense) ideas into algebra or geometry - basically gimmick.

When was the last time it was given to someone who actually had an idea, let alone a solution (to something like unemployment or mass poverty in the third world).

We know the solutions to those problems: Law and order; Lack of corruption; Property rights; Rule of law; Universal education; and Freeish markets. It is just that the elites in many countries have preferred to loot their own countries or indulge in ideological or religious fantasies rather than allow the circumstances of their countrymen to improve.

That is very debatable. Let's just say that successful late developers (China, Japan) had periods of very unfree markets, and what happened when they were not free and HOW they transitioned into a global economy was also very important.

I do not think there has been any recent nobel prize winner who has said anything useful about this. But this is important in understanding how to get most of the world out of poverty.

This sort of work is done in history and other such departments - looking at the history and the context, not creating fanciful and gimmicky model. I would say, for example, in terms of qualitative insight (ie what is important) Harrod and Domar had more to say than, say, Solow let alone Prescott.

Harrod was a Nobel Prize winner, but that was when economics was quite different.

For what it is worth, in my opinion the following paper goes further in explicitly estimating the proportion of variation in real output attributable to monetary policy than any other:

What are the effects of monetary policy on output? Results from an agnostic identification procedure By Harald Uhlig (2005)

Abstract: "This paper proposes to estimate the effects of monetary policy shocks by a new agnostic method, imposing sign restrictions on the impulse responses of prices, nonborrowed reserves and the federal funds rate in response to a monetary policy shock. No restrictions are imposed on the response of real GDP to answer the key question in the title. I find that ‘‘contractionary’’ monetary policy shocks have no clear effect on real GDP, even though prices move only gradually in response to a monetary policy shock. Neutrality of monetary policy shocks is not inconsistent with the data."

Uhlig notes in a footnote on the first page his gratitude to Chris Sims and a long list of other economists (including Bernanke) for their helpful discussions and comments.

On page 384 Uhlig notes:

"‘‘Contractionary’’ monetary policy shocks have an ambiguous effect on real GDP. With 2/3 probability, a typical shock will move real GDP by up to +/- 0.2 percent, consistent with the conventional view, but also consistent with e.g. monetary neutrality. Indeed, the usual label ‘‘contractionary’’ may thus be misleading, if output is moved up. Monetary policy shocks account for probably less than 25% of the variance for the 1-year or more ahead forecast revision of real output, and may easily account for less than 2% at any given horizon."

On page 392 he states:

"I have followed the empirical approach in Bernanke and Mihov (1998a, b), who have used real GDP, the GDP deflator, a commodity price index, total reserves, nonborrowed reserves and the federal funds rate for the U.S. at monthly frequencies from January 1965 to December 1996.

He explains his results in greater detail on page 398-399:

"According to the median estimates, shown as the middle lines in this figure, monetary policy shocks account for 5 10% of the variations in real GDP at all horizons, for up to 20% of the long-horizon variations in prices and 15% of the variation in interest rates at the short horizon, falling off after that. Explaining just two or so percent of the real GDP variations at any horizon is within the 64% error band: it thus seems fairly likely, that monetary policy has practically no effect on real GDP. This may either be due to monetary policy shocks having little real effect, or due to a Federal Reserve Bank keeping a steady hand on the wheel, as argued by Cochrane (1994), Woodford (1994) or Bernanke (1996)."

Examination of the graph on page 400 reveals that the peak proportion of variation in real GDP attributable to monetary policy shocks occurs at the 2 month horizon. It also reveals that 16% of the time the proportion of variation is greater than 40% at the 2 month horizon. In a 32 year period that would mean that would have occurred in approximately 61 months.

t thus seems fairly likely, that monetary policy has practically no effect on real GDP. This may either be due to monetary policy shocks having little real effect, or due to a Federal Reserve Bank keeping a steady hand on the wheel, as argued by Cochrane (1994), Woodford (1994) or Bernanke (1996)."

Would be good if this could be explained to a non-economist. It sounds like this conclusion wants it both ways - MP is ineffective, or a very effective stabilisation mechanism. What was the data sample?